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SEARCH EXTERNALITIES IN MACROECONOMIC THEORY
Author(s) -
Wing Gerhard
Publication year - 1993
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.1467-8586.1993.tb00558.x
Subject(s) - economics , returns to scale , externality , microeconomics , general equilibrium theory , complementarity (molecular biology) , allocative efficiency , pareto principle , transaction cost , context (archaeology) , production (economics) , paleontology , operations management , genetics , biology
The paper gives a survey of the basic features of macroeconomic models with search externalities. It presents a simple static general equilibrium model with search externalities. Within this context the main results characterizing steady state in dynamic search models are reproduced in a simple context. Specifically, the link between transaction technology and strategic complementarity is analysed. It is shown that increasing returns to scale in the transaction technology create feed‐back effects and multiple, Pareto‐ranked equilibria may arise. With economies of scale in matching, fluctuations in the economy can be large even with a low elasticity of search activity. The formal equivalence to models with investment externalities is analysed. In an application to the labour market, the allocative role of wages in the presence of search frictions and hysteresis effects are discussed. General conditions are given under which the set of welfare ranked equilibria is described by a closed loop. Finally, it is shown that with a more general transaction technology, even with constant returns to scale multiple equilibria may occur in the presence of externalities.